Congress will soon vote on raising the federal minimum wage to over $10 per hour. Few realize that, from the perspective of many employers, the government has already done this.
The Obamacare employer penalty will add thousands of dollars to hiring costs in 2015. Coupled with existing minimum wages and employer-side taxes, it will raise the minimum cost of employing a full-time worker to $10.30 per hour.
The Obamacare employer mandate requires businesses that do not provide “qualifying” health coverage to pay a $2,000 penalty in after-tax dollars for each full-time worker they employ (with an exemption for small businesses and for the first 30 workers). This works out to $3,279 in pre-tax dollars. Very few minimum wage employers provide the extensive (and expensive) benefits Obamacare requires, so most will pay the penalty instead of offering Obamacare-approved health plans.
This penalty does not directly benefit workers, but it will add $1.64 per hour to the cost of employing them. This will raise full-time hiring costs to $10.30 per hour in 2015. (For a detailed explanation, click here.)
The employer mandate functions as an extra $1.64-per-hour tax on hiring workers who can produce at least $10.30 per hour—and as a job killer for those who cannot. By 2015, workers producing less than $10.30 per hour will not remain employed full-time for long.
Some Members of Congress now propose adding to these hiring costs by raising the federal minimum wage from $7.25 per hour to $10.10 per hour. This would have disastrous consequences for the unskilled workers and families they want to help. It would raise the cost of hiring a full-time worker to at least $12.71 per hour. A worker would have to produce at least that much for a company to break even on that position.
Many inexperienced and entry-level workers do not produce $12.71 per hour in value for their employers. They gain not just their paychecks from working but also valuable experience that leads to higher paying jobs and career advancement. Two-thirds of minimum wage workers earn raises within a year.
Entry-level jobs pay off in the long run for many workers. But if Congress adds a minimum-wage hike to the Obamacare mandate, many employees will never get that chance.